If you are planning to build your home on your own there are several ways of financing a project:
You need to assess your situation and work out which method or combination of methods will work best for you.
Community-led housing schemes are eligible for grants towards some professional fees. Locality has more information or visit the Community Led Homes website for a wider range of advice. Some of the bigger lending institutions may also be worth approaching, such as Ecology Building Society, though obtaining finance for group self build schemes can be difficult, as you must be able to demonstrate the viability of the scheme.
Typically, self-build mortgages are offered by specialist lenders such as building societies, and also be some banks.
For a self-build mortgage you usually receive funds at different stages of the build, and traditionally this was reliant on a valuer visiting the site to sign off on these stages, and release the next tranche of funds. However, this can run the risk of cashflow problems if the site is “downvalued”, potentially leaving you short of money to pay bills or progress work.
Some specialist providers, such as Mayflower Mortgage and Finance and Buildstore, offer innovative self-build mortgages, specifically designed for the market. Other lenders, such as Ecology Building Society, have a particular ethos to their lending, such as sustainable products. These companies are very well placed to discuss the market, and often have other resources that self builders can make use of.
Many building societies operate in the self build arena, as this kind of lending sits well with their identity as a society. They can also be a good source of information, with many, such as Saffron Building Society and Swansea Building Society, having their own self build guides.
For example some products will release funds during the build that are linked to the cost of each stage of work and aren’t reliant on the site value.
Certain products offer funds “in advance” of each stage of work and reduce your contribution to land and build costs to as little as 5%, compared to traditional self-build mortgages which may require you to contribute as much as 40% of costs.
Traditionally, you could only borrow roughly 75% of the land cost, and 60% of the build cost, so you will still need a sizeable deposit. However, there is a range of mortgages available that offer higher loan values.
Mainstream lenders are increasingly accepting new ways of building a home – known as “Modern Methods of Construction”- including various combinations of structural construction and cladding and including offsite manufactured systems which can significantly speed up the build process. For excample, Ecology Building Society has launched a new product specifically for self builders using MMC and offsite construction.
Budgeting can make or break a project. The more accurate your estimates, and calculations, the more likely you will build your dream home without any crippling over spends. See our BUDGET ADVICE page for things to keep in mind.
For a self build, labour is zero rated, and the VAT on materials can be reclaimed on a new build property. VAT is still payable on services such as architectural fees, scaffolding and plant hire etc but cannot be reclaimed.
New build homes are zero rated for labour under VAT notice 431(NB), so you should not pay any VAT on labour regardless of whether your trades or builder are VAT registered or not. There is a slight difference when it comes to conversions where there will be a 5% VAT rate applied to labour when you use a VAT registered builder and reclaim under VAT notice 431(C).
You do not need to provide any evidence that you are a self builder to your contractor for them to zero rate the labour element, but you do need to keep an eye on any invoices to make sure you have not inadvertently been charged VAT on labour. If you have, then you will need to challenge the builder and reclaim it from them not the taxman because it will not have been due to HMRC in the first place.
Keep the originals of all of your VAT invoices and receipts as you will need these when you make your VAT reclaim; copies are not allowed. Any receipts for individual items over £100 need to include your address, or the site address so a till receipt will not suffice for these items. Remember that you can only recalim for materials used in the construction of the property, not for professional services like architectural fees, plant hire or surveys etc. Landscaping costs can be reclaimed, but only if they have been specifically appoved by your local planning authority as part of a formal landscaping plan. The HMRC website has more information on what can and can’t be reclaimed.
Self Build projects are eligible for VAT exemption, but they must create a new dwelling, that is for you to use as your own home. There are other conditions for different types of projects, and if you are eligible you need to follow the process for claiming the VAT back AFTER you’ve paid it. Consequently, you need to obtain VAT invoices and keep precise records to ensure your claim is accurate. You can only submit one claim.
Buying building materials
But the rules are complex and not everyone can reclaim VAT.
If you are eligible to reclaim VAT, then you have to keep very good records as you have to present your original VAT invoices at the end of the job. Generally, labour only and supply and fix invoices should be VAT free on new builds, but different rules apply on conversions.
The Government has confirmed that self builders (and the clients of custom builders) will be exempt from paying the Community Infrastructure Levy (CIL) that is normally charged when planning permission is granted for a new house. But you must follow process, and it is time sensitive. It has also confirmed plans to exempt self builders from paying Section 106 (S106) Affordable Housing Contributions, although this has been challenged and seems to be in a constant state of flux.
More detail on these topics is available on our dedicated CIL/S106 EXEMPTIONS page.